Boston Scientific Corporation at JPMorgan 25th Annual Healthcare Conference - Final
Fair Disclosure Wire. Waltham: Jan 9, 2007. pg. n/a
LARRY BEST, CFO, EVP FINANCE & ADMINISTRATION, BOSTON SCIENTIFIC CORPORATION: Throughout the presentation, I most likely will be making some forward-looking comments, so the typical Safe Harbor clauses apply. As most of you know, some of you have been following us for over a decade, I always start off with a report on sales and the strategic build of Boston Scientific; so today is no different.
We are very proud of what we have been able to accomplish over the last 10 years. If you look closely, roughly over the last decade, we built the Company at the top line almost ninefold. Throughout that period of time, we have had a number of different chapters. Our first several chapters had to do with becoming the world leader in catheter-based interventions. We achieved that.
Second goal was to somehow get into the microelectronics market; so not only have a catheter franchise but have the microelectronics franchise for implantables. It took us a while to get in. 2004 was our first entree with the acquisition of Advanced Bionics. We now are a player, a big player, and leader in neuromodulation. Then we went forward less than a year ago and of course acquired big-time into microelectronics by acquiring Guidant's cardiac rhythm management business.
So it is exciting to be a part of Boston Scientific. As you can see just from the chart, there is never a dull moment and we continue to look forward to building long-term shareholder value and a very diversified premier global device Company.
On the estimate in 2006, roughly $7.8 billion next year; I have the long-range on there around $8.7 billion with roughly 29,000 employees.
So we have never been better positioned strategically. Our strategic map is very full. We are in the sweet spot of medical device, the medical device world, in that we are basic, fundamental in cardiac rhythm management, with a number-two position in ICDs, high-power market; and of course, in the interventional cardiology space we are clearly number one. The number one in DES and now also number one outside of drug-eluting stents.
If you count the numbers up, about 80% of the Company today is cardiovascular. We are one of the and probably will be the largest cardiovascular medical device company in the world.
But we also have exciting opportunities in the underpenetrated market in neuromodulation. I will say a little bit more about that.
And of course you see that 17% of our Company is endosurgery. It is the most predictable part of Boston Scientific. It just is like a Timex watch, it just keeps on ticking, keep on growing double digits. It is a wonderful business. In gets lost a bit in a cardiovascular Company, but it is near and dear to our heart in terms of growth and strategic outlook in terms of diversification.
You can see the breadth of our business today. We're one of the most diversified players in med tech. High-margin business and in high-growth markets. They stall every once in a while, as you can see; the CRM market has stalled a little bit. The drug-eluting stent market, which in the history of medical devices is the most -- the biggest successful market in such a short period of time, it stalled a little bit. But they are the sweet spots in medical devices.
We have three operating groups and 12 growth segments or franchises.
If you look at our position in cardiovascular medicine, again, probably the most richest place to be. We're number one in interventional cardiology, and we're number two in the high-power market. Hope to be number two in cardiac rhythm management in toto, after we recover a bit from fixing some of the things we had to fix in the Guidant postacquisition.
We have only been in the CRM market or business for nine months. In the last nine months we have made a lot of lot of progress. We look forward to leadership in this space in the years ahead.
You can see the other players. No one has a set of cards like ours. We think we have the best cards to play off of over the next five to 10 years. We have got the right people, right technology, and the market opportunity is definitely there.
A little bit about 2007 as we break open the new year, what are our priorities. '06 was a big year for us in terms of strategic build. Now things are settling in, and here is what we're focused on in 2007.
First and clearly, our top priority is to satisfy the FDA with the quality of what we do at Boston Scientific. We're making great strides. Our goal is by the end of the year to have all of our warning letters lifted. We are on our way to do that, hopefully sometime in the second half of 2007. Once we get the warning letters lifted, it frees up a lot of pipeline. And we are excited about our pipeline; it's very deep, very broad. You will be seeing new launches hopefully by the end of this year.
We're going to focus on the balance sheet in 2007. We want to reduce the debt that we acquired or associated with the acquisition of Guidant. We clearly have more debt than we would like. I don't like the leverage we have. We have a little too much risk in the balance sheet. I plan to do -- propose some ideas to solve that in the next six, nine months, and you'll be hearing about that.
Focus on spending discipline. This is now religion at Boston Scientific. We're taking a timeout. We're looking at every process that we have within the Company. We're looking at every organization within the Company. We can't think of a better time to get our spending where it should be. This is driven by an interest in being world-class. We now are approaching a $9 billion global size of business. We owe it to our shareholders to not only be one of the largest global leaders in medical devices, but also world-class in terms of operating and profitability.
So spending discipline. We are tearing, literally tearing the place apart, if you will, through an analysis, piece by piece. We're going to get the spend down, and we are going to get lean, and we're going to have world-class operations throughout the Company. It's not going to happen tomorrow. It will take a year or two, but it will happen.
That will help us strengthen the balance sheet. I think you will see progress over the next 24 months on the balance sheet. We took on a lot of debt when we acquired Guidant. We thought it was transforming for the Company. We did it. But we have a very high priority in getting our balance sheet in the shape it should be in order to position ourselves for growth and continue to invest in the business.
And we are preparing for a reacceleration of growth across the board. All of our businesses are extremely healthy. The drug-eluting stent market is healthy. The CRM market is recovering, and we like what we see.
A little bit about CRM. CRM market has been one of the richest markets to be in. You can see in 2000-2004, it grew about 16% compound annual growth. With some recalls in the industry, and a lot of them from Guidant, safety became a concern. It stunted the market a bit, and now we have to recover off that.
There is no question, at least we don't believe there is a question in terms of the recovery of the ICD market, especially. The data is just too compelling. The therapy is just too outstanding. We expect that this market will recover very nicely. But is going to take a little time. But you saw it in the fourth quarter a bit.
CRM, we think will continue to -- will get back to and recover to a double-digit rate of growth.
ICDs, defibrillators, a sweet spot. Last 2000-2004 grew compound annual growth rate of high 20s. It has been stunted a bit with the activities and controversies of the past 12 to 16 months. We think it is on its way back up to double-digit growth, and we think we are in a nice position to grow off the base that we establish here as we enter 2007.
What is our strategy within Boston Scientific cardiac rhythm management? Very simply, we have to restore the trust and confidence that we lost with the Guidant CRM business. There was a lot of stubbing of toes, quality issues. We are full-court press on restoring that confidence. You restore it first and foremost with quality of what you put out there in the physician's hands. We think we have come a long way; we have got a long way to go.
But the restoring the confidence is already starting to -- beginning. We saw it in the fourth quarter. We felt that we were hitting bottom in the third quarter. We are optimistic about the fourth quarter, assuming the recovery in the market continues. We have the right people, we have the right technology, and we think we're going to do very well.
Once we regain that, restore that confidence, we will start regaining share and taking back some of the share we lost. We think that that is something that we will have to work hard on, because obviously the other competitors won't want us to take share. But we have strategies in place, we have pipeline in place, and we have a team in place that I think will serve to be successful in regaining our market share.
Then, after that, or a part of that, is moving for leadership. We don't like to be number two or number three in any market. Our goal is only -- we only have one goal, be number one. It takes a while. You build it long. A long and hard work, but you can do it.
In 1994, I stood before an audience like this and said, we are going to be number one in interventional cardiology, and nobody could believe that. But we achieved that. In 1999, 1998, '99, I said we're going to be a leader in drug-eluting stents. Nobody really believed that. They thought we were going to be fifth or sixth. We're a clear leader. We demonstrated our ability to lead and we expect to do that in the cardiac rhythm management market.
Warning letter at CRM; it is an overhang. It is all about quality. We are very proud of the progress that the Boston cardiac rhythm management force has put forth in terms of improving quality, giving us confidence and our customers confidence that we have quality in everything that goes out the door. We invited the FDA in. Very proud to invite them in. They have been in, they have performed their inspections, they have been completed. We are waiting word from them on clearance of the warning letter. I did not know what the timing will be.
In terms of restoring product cadence, I don't have time to go into the entire pipeline, but it's safe to say across the board we have a rich pipeline. We think we really have a strategic advantage with our LATITUDE, our wireless monitoring capability. We think it is simply the best monitoring technology out there. It is in its infancy, and we expect to gain market share with leveraging our LATITUDE technology. We could not be more thrilled with the pipeline behind the LATITUDE platform.
Our first product that will actually have Boston Scientific implanted on it will be a [Cognis] product; and this is the future of Boston Scientific. We plan to be in cardiac rhythm management for a long time. We plan to be a leader. How long it is going to take us to become number one in cardiac rhythm management is up for guessing. But make no mistake, we are not in the market to be number two or number three.
Neuromodulation, a great underpenetrated opportunity, probably the richest opportunity outside of cardiac rhythm management over the next five to 10 years. It is going from here, early in the 2000 period, a couple hundred million to hopefully in 2009 to a $2.5 billion market. We like the market a lot. We did our homework. We bought Advanced Bionics and we simply bet -- we think we purchased the best platform in the space. It is broad and deep, and we look forward to continuing to grow our neuromodulation business into a $1 billion plus franchise.
You can see we are already -- we have had a good start. We started in the pain market just literally less than 36 months ago. Medtronic had 70% market share. You can see quarter by quarter how successful we were. Now, you don't gain this success by not having great technology and great people. We have both. And you can see the progress that we have made. Every quarter we take share simply because we have the best technology and some of the best people. We continue to think that we're going to be a leader in the pain market.
If you look at auditory market, there's only two big players. We're one of them. We are number two right now. Our goal is to be number one. But it's a nice market. It has the opportunity to get into probably achieving 500 or $600 million in market size, oh, five or so years from now, with new technology and some of the things we have in our pipeline.
Then, one of the projects of many projects we're working on in the neurostimulation area is treatment of migraines with a pulse generator. We are in humans; so far so good. It is a big market opportunity. We think we have an opportunity to hit it with our first product called Precision. So we will keep you up-to-date there, but a lot of growth opportunities in neuromodulation. We really expect that our neuromodulation strategy will result in a franchise north of $1 billion or $2 billion sooner than what people might think.
Just a little history of how successful we have been. We acquired Advanced Bionics into Boston Scientific in 2004. It was in the 60 to $70 million range. It turned out at the end of the year to have $80 million in sales. In 2005, we grew it substantially; and you can see 2007 estimate is for it to be a 315 to $330 million business. Compound annual growth in pain management has been 157%. Compounded annual growth in auditory has been 20%.
We really like this space. And this is only two of probably 20 different opportunities that are rich in neurostimulation. More to come on our neuromodulation strategy in the years ahead. We like where we are in that market.
In terms of DES, simply revolutionary technology. Never in the history of medical devices has there been anything like a drug-eluting stent. Keep in mind in 2004 -- I think it was 2004 -- we launched our TAXUS stent. We added to our top line in 2005 $2.1 billion in 12 months. No other company has ever done that, no pharma company has ever done that with a leading drug. We did it with TAXUS, and now we are burdened by it. We are burdened by our success. But if you're going to have a problem, have one like that. It is a luxury.
The technology is revolutionary. You can see in treatment of cardiovascular disease, the restenosis rate, the failure rates all have come down from the old days of balloon angioplasty. So it simply is revolutionary.
Most importantly is the data; the data is so compelling on the safety and efficacy of TAXUS. Make no mistake; there's been a lot of perceptions, misperceptions about drug-eluting stents. Make no mistake; our data is long-term data and it is just simply outstanding and best of class.
A little bit about the market dynamics. When we launched, first off, we launched as number two in the U.S. Most people gave us an opportunity to get 30% of the market. We ended up with 70% of the market in the first 12 months. Now we are down in the 50s, but we continue to lead the market in the United States and the world where we participate. We have an over $2 billion product line at very attractive margins.
We expect to sustain leadership in drug-eluting stents. We simply have the best pipeline, the best sales force, and the best opportunity, we think.
What we're doing right now in 2007 is reinforcing the TAXUS safety with the wealth of clinical data that we have. We're going to reinforce the deliverability; and of course we're going to demonstrate our pipeline by launching the second=generation Liberte, TAXUS Liberte, hopefully by the end of the year.
Japan, big opportunity. Second-largest market in the world for medical devices. We are not in it. We will be in it, if everything goes well, second half of 2007. We expect to do well. We expect to lead in that market. We expect to have a $300 million business in 2008 for the full year. TAXUS should do extremely well. This is all upside to our DES business in 2007.
We're the only company that has two offerings in terms of two platforms, two drugs. We offer the world-leading, global-leading TAXUS with paclitaxel; and we also now have PROMUS, which has been launched in Europe, in a very limited way thus far. So we have PROMUS with everolimus, and I think many of you may have heard of the Abbott presentation today. It looks like an outstanding technology, an outstanding drug, an outstanding chemistry.
We can offer to our customers both PROMUS/the XIENCE platform; or TAXUS paclitaxel which has long-term safety and efficacy data attached to it. No other company is in that position. Our toughest competitor probably in the next three years will be Abbott, and we have what Abbott has. So it is not a bad position to be in. We are aggressively iterating PROMUS to our own platform in terms of stent delivery systems and balloons. We look forward to having that in the market in the years to come.
This is our pipeline; I don't have time to go through the whole pipeline, but it's safe to say if I lined our pipeline up with any of the other competitors, or want-to-be competitors in this market, no one has the depth and breadth of drug-eluting stent technology. No one has a position of leadership to iterate from and to execute from. We're simply the best positioned to sustain leadership and growth in the drug-eluting stent market in the years ahead.
Carotid market. We don't spend a lot of time talking about it. Let me spend a couple seconds. It is a great market. It is going to be a big market. It has been 10 years-plus in the making. We think by 2011 it will be somewhere between 500 and $750 million. We expect to be the number one player in carotid stenting. We are not in it to be number two. We think we have the best technology. We just acquired a company called EndoTex in the last -- well, since -- I think it was the first week in January, last week. It simply could be the leader in carotid stenting. We like our other platform also. So far in Europe we have a leadership position. We expect to see that also in the U.S.
We have the next stent that we acquired [in] and we have been involved with that for years now. We have the WALLSTENT, and as I mentioned we're doing very well with the WALLSTENT in Europe and now in the U.S., once we get approval this year.
A little bit in closing in my remarks, I want to tell you about a business that is captured within the cardiovascular business -- but how good is this? The simply is our endosurgery group. This is its record over the past eight, nine years. It is the most predictable medical device franchise, I think, in the space. It grows double digits. It is driven by demographics, it is broad, and it is diverse.
If you break it down into the three operating groups, oncology, urology, gynecology, and endoscopy, you can see -- not a weak link. They all grow. It is like it is driven by demographics and new technology. It is a great opportunity, it's a great part of Boston Scientific, and we couldn't be more pleased to have it as part of Boston Scientific.
This franchise will become not only a $2 billion franchise; this franchise and group will become a $3 billion franchise or group in the years to come. The pipeline is pretty full, as you can see. I don't have time to go over it. But our endosurgery group provides additional diversification for Boston Scientific and predictability.
Simply stated, we have never been better positioned to grow over the long term. We are excited about the future, we're excited about the markets we are in. We're going to shore up the balance sheet.
We're going to take a hard look at our spending levels to show greater profitability. We already have one of the most profitable medical devices in the world, but there is money on the table. You will hear more about that. And we will continue to grow Boston Scientific for many years to come. Thank you very much.
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